The Business Member - Warehouse Club Focus

2014 Warehouse Club
Industry Guide
The Business Member
An Industry Foundation
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Marketing Money
Successfully selling merchandise to warehouse clubs is not just offering buyers merchandise at the lowest possible cost.
There are many factors to a successful warehouse club program and the complexity of the buyers’ requirements increases
every day. One key factor in selling BJ’s, Costco and Sam’s Club is participation in warehouse club marketing programs.
Club promotional programs are designed to increase sales, increase brand awareness and access vendor marketing funds.
Although buyers want vendors to participate in these programs, they try to negotiate the marketing expense out of an item’s
cost of goods. No matter how these initiatives are funded, suppliers need to understand how successful the program will be
at increasing sales or brand awareness. This chapter includes four sections: effectiveness, marketing money use, marketing
program focus and an overview of club marketing options.
Effectiveness
In 2010, club manufacturers, club employees, brokers and third party service
providers ranked the following four club marketing programs on their effectiveness at
increasing sales: product demonstrations, price reduction, end caps and coupons.
The marketing programs were ranked from one to four with one being the most
effective. The results from 2003 (for a historical perspective), 2007, 2008, 2009 and
2010 can be seen in the chart on the right.
Effective Program - Average Data
Type
Coupons
End Caps
Price Reduction
Product Demonstrations
2003 2007 2008 2009 2010
2.9
2.2
2.7
2.8
2.7
2.0
2.9
2.5
2.4
2.2
3.0
2.4
1.9
2.2
2.9
2.9
2.1
2.2
2.7
2.9
WCF Research, 2010
Over the past few years, warehouse club use and success with coupons has affected the results in this survey. In 2007, end
caps were ranked as most effective followed by product demonstrations, coupons and price reduction. However, by 2010,
there is a clear disparity between the top two marketing programs and the bottom two marketing programs. Coupons with a
2.1 average ranking and end caps with a 2.2 average ranking were the most effective while price reduction with a 2.7 ranking
and product demonstrations with a 2.9 ranking were third and fourth.
Marketing Money Use
How Does Your Company Use Marketing Funds?
Response
We will consider ANYTHING, including the potential for road shows to introduce products and/or help the buyer keep excitement
in the department.
Build the best program you can at the lowest member price. Use marketing $ for demos and keep the quality high.
15 years ago the clubs wanted the best price available. Now we have to build the marketing funds into the cost of goods.
Must fit club go-to-market strategy, must provide ROI and must provide incremental growth.
Strategy varies by brand and by account strategy. Focus is to drive incremental volume, increase household penetration and
increase repeat purchases.
There are a number of performance driven programs that work or have worked with the clubs: minimum SKU programs, quarterly
pallet programs, quarterly volume targets and quarterly IRC programs.
Planning process with brand team to build a plan to make sales target. Must remain within company standards of spend levels.
We believe that proper marketing programs can drive sales at club. We believe in working with buyers to optimize our programs
and create synergies with broader programs wherever possible.
All customers get a percentage allocation based on a fixed rate of purchases and a variable rate based on strategic partnership.
We offer a percentage of marketing funds to be used any way desired by the buyer. Demos or a combination of demos and end
caps are typical.
We develop programs that position seasonally appropriate products to be top of mind with club members. Includes demos and in
and out of club vehicles.
We tie a fixed $ amount of funding to a fixed shipment commitment to each club. This allows us to accurately plan our
profitability and capacity.
It depends on the program. If it is a new item, we are likely to use a demonstration program to build awareness everywhere but
BJs. BJs product demonstrations are not effective. If we are looking to drive volume, we go MVM and try to target items that are
exclusive to Costco.
WCF Research, 2009
In 2009, club vendors were asked how
their
respective
companies
use
marketing
funds.
Respondents
discussed a number of different
approaches on developing and offering
marketing funds to club buyers (see chart
on the left).
One respondent said,
“Strategy varies by brand and by account
strategy. Focus is to drive incremental
volume, increase household penetration
and increase repeat purchases.”
Another respondent stated that they work
with club buyers to optimize the program.
He said, “We believe that proper
marketing programs can drive sales at
club. We believe in working with buyers
to optimize our programs and create
synergies
with
broader
programs
wherever possible.”
The following respondent tied a fixed amount of funds to each pallet purchased. He said, “We tie a fixed $ amount of funding
to a fixed shipment commitment to each club. This allows us to accurately plan our profitability and capacity.”
Marketing Program Focus
In 2009, club vendors were asked what marketing program is most important to each club operator. The chart on the next
page shows what marketing programs are important to each club operator. When selling BJ’s, 45% of respondents said the
company’s big brand mailer program is most important followed by front of club coupons and product demonstrations which
were cited by 28% of respondent respectively.
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When selling Costco, 39% of respondents said the company’s MVM coupon program is most
important followed by product demonstrations at 31%, end caps at 28% and the company’s cookbook
at 2%. When selling a Sam’s Club buyer, 49% of respondents said product demonstrations are most
important followed by end caps at 21%, using money in cost of goods at 15%, online marketing at
12% and bonus packages at 3%.
Club Marketing Programs
The following eight club marketing programs are the most likely vehicles used by a club vendor.
End Caps – End caps are full pallet displays found on the end of an aisle. End caps can be located
on the aisles facing the middle of the warehouse or on the sides facing outside walls. Vendors pay
anywhere from $300 to $600 per period (one to two weeks) per location for this marketing tool
Marketing Focus
BJ's
Big Brand Mailer
45%
Front of Club Coupons 28%
Product Demonstrations 28%
Costco
MVM
Product Demonstrations
End Caps
Cookbook
39%
31%
28%
2%
Sam's Club
Product Demonstrations
End Caps
Price/COGS
Online Marketing
Bonus Packages
49%
21%
15%
12%
3%
WCF Research, 2009
End cap items are selected based on seasonality, in-and-out items or good value. End caps are normally scheduled four
weeks in advance to allow for proper planning by the locations. The warehouse determines compliance and vendors should
spot check the end caps it purchases. Buyers are measured in part by how many end caps are bought by their vendors.
What Success Have You Had With Costco's Regional End Cap Program
Company
Response
Large
Small
Small
Small
Large
Food
Food
Non-Food
Food
Food
Small
Food
Small
Broker
Large
Large
Food
Food
It depends on what I am trying to accomplish. Overall it is not a great investment.
Excellent lift in sales.
Worthwhile if combined with demos and IRC or coupon.
Good but it depends on the success of the demo program.
It is difficult to justify the expense as the "lift" is not measurable.
We've found that the program is extremely successful when run in conjunction with a demo,
however, when you do this your $$ exposure is greater. If you are willing to spend the
amount (knowing it will detract spend from other timeframes), then doing an end cap with a
demo is a good investment.
Typically strong execution at the club level. We've had challenges with the number of sell
units on a pallet and the time needed to sell through.
Items featured on these end caps usually show increased volume during that period.
Poor return on investment with a lift of less than 20%.
WCF Research, 2009
Costco offers vendors a regional end cap
program that runs eight to 12 times a year,
costs $1,050 per building for two weeks
and is merchandised near the cooler and
freezer.
As can be seen from the chart on the left,
respondent reaction to this program is
mixed. A large food vendor said, “[The
program offers a] poor return on investment
with a lift of less than 20%.” Another large
food vendor said, “It is difficult to justify the
expense as the ‘lift’ is not measurable.”
However, companies that perform product demonstrations in conjunction with the regional end cap program produce improved
results. A small food vendor said, “We’ve found that the program is extremely successful when run in conjunction with a
demo, however, when you do this your $$ exposure is greater. If you are willing to spend … then doing an end cap with a
demo is a good investment.” A small non-food vendor said, “[The program is] worthwhile if combined with demos and IRC
[instant redeemable coupon] or coupon.”
Product Demonstrations – Product
demonstrations can be an effective tool for
increasing sales, introducing a product to
members and creating excitement in the
clubs. The vendor needs to develop a
good relationship with the demonstration
company.
Teaching the demonstration
company how to cook or sell the product
(using videos or printed information) can
improve the potential sales of the product.
The manufacturer and buyer should
negotiate
the
number
of
product
demonstrations for each item before the
buyer accepts the program. The cost for a
typical full day product demonstration is
approximately $150, plus the cost of the
product.
Manufacturers are generally
discouraged
from
performing
the
demonstrations themselves, as the clubs
can retain more control.
Buyers are
measured in part by how many product
demonstrations their departments generate.
Marketing Money
How Do You Determine Product Demonstration Effectiveness?
Company
Small
Broker
Small
Broker
Small
Food
Small
Other
Response
At Costco, the demo program is better executed. Always expect a 25 to 30% bump with at least a 710% retention of sales. Sam's is hit and miss. Their program is inconsistent and under flux at this
time. However, you still need to participate because demo's are used as a profit center for Sam's.
It's mandatory so measuring effectiveness is almost irrelevant. That being said, using door counts to
measure appropriate levels of sample usage and sales is about all we do.
Unit sales per person shopped (total unit sales divided by door count).
Typically one demo is good to get the product out there in the member's hands. But once you get
past doing two demos, you just don't get the additional lift for the dollars you are spending.
Beginning of the week demos are not profitable. Operators should consider 1/2 price demo fees for
Monday to Wednesday.
Medium
Food
We try to calculate an ROI. So far we have not shown them to pay out.
Large
Broker
We have not done demos in over 5 years. There was no ROI.
Large
Broker
Yes, but we approach it as a long term investment.
Large Club Employee Sales during and the following two weeks.
Sales two weeks before demos, sales during demo period and sales two weeks after demos to see
Large Club Employee
growth.
Medium
Food
Large
Food
Same period dollar sales vs. previous year to determine how successful. Gross sales to determine
break even point.
Compare sales to non-demo day for immediate unit impact.
I look for at least $1,000 a day and a ROI of 35% to 55% on the back end of the demo up to three
weeks after it ends.
Large
Food
Large
Food
Large
Food
Success is measured in length of time the product survives at the club. Volume in the weeks around
the demo rarely pay the cost of the demo, but the overall support helps to keep items in distribution
longer.
Large
Food
There are so many ways to measure it and it's ultimately one of the few tools you have to grow sales
and introduce products, so good or bad, we use it. We generally see $1 sales for $1 spent.
WCF Research, 2010
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In 2010, club manufacturers, club employees, brokers and third party service providers were asked how they determine
product demonstration effectiveness. The chart on the previous page shows responses to this question. A number of
subscribers suggested including door counts as part of the evaluation process. A small broker said, “It's mandatory so
measuring effectiveness is almost irrelevant. That being said, using door counts to measure appropriate levels of sample
usage and sales is about all we do.”
Respondents said to truly measure the effectiveness of a product demonstration, a long term outlook has to be taken. A large
food vendor said, “Success is measured in length of time the product survives at the club. Volume in the weeks around the
demo rarely pay the cost of the demo, but the overall support helps to keep items in distribution longer.” Other respondents
did offer some objective ways to measure product demonstrations. A large food vendor said, “I look for at least $1,000 a day
and a ROI of 35% to 55% on the back end of the demo up to three weeks after it ends.”
Coupons – All three clubs offer a coupon program. BJ’s offers merchandise coupons in its BJ’s Journal magazine and via
bulk-mailing direct to members. The savings that have been offered in BJ’s Journal have not been as dramatic as the ones
offered by Costco. The majority of BJ’s coupon items are supermarket-type SKUs.
In 2009, Sam’s Club introduced a new coupon initiative called eValues. The program is only available to Sam’s Club premium
or plus members. The coupons are customized for each member based on products each person purchases. Sam’s Club
plus members can review their eValues coupons on samsclub.com, using eValues kiosks located inside the club locations or
through a smart phone application. The coupon or discount is automatically applied at checkout on eligible items.
Costco’s MVM (multi vendor mailer) coupon program is run 11 to 12 times per year for approximately 25 days each. Each
MVM has approximately 90 to 110 items. MVM redemption rates are extremely high. Costco configured its register system to
automatically apply a discount for every coupon item a member purchases as long as one MVM coupon is scanned. Costco
and its vendors plan for those high redemption rates and order an appropriate amount of product prior to an item’s MVM
period. As a result, MVM coupon items typically receive a free end cap.
In 2010, club manufacturers, club
employees, brokers and third party
service providers were asked their
opinion about Costco’s MVM program
(see chart on the right). While many
respondents were very satisfied with
the resulting sales volume, some
were less pleased with overall
profitability. A large non-food vendor
said, “[The program has a] significant
impact on sales, 300% lift per week.
[However] profit impact is a concern
with
new
coupon
coding
methodology.”
A small non-food
manufacturer said, “Sales increase
8x-10x but fees to participate and
20%+ discount makes it a non-profit
event. Everyday price is higher now
because vendors must build the MVM
expense into the everyday price.”
What Is Your Opinion About Costco's MVM Program?
Company
Response
Small
Broker
The buyers spend a lot of time working on getting participation. Since participation is national, all regions are
required to carry the item. Good for large CPG companies, difficult for smaller companies that often drive more
profit dollars. Competition for space is very high, these programs take away space for treasure hunt items.
Small
Broker
I have a very hard time understanding how the MVM program melds with "best price" practices but they do get
tremendous redemption rates.
Small
Non-Food
Medium
Food
Large
Broker
Large
Food
Large
Food
Large
Large
Large
Large
Large
Large
Pay-to-Play. Sales increase 8x-10x but fees to participate and 20%+ discount makes it a non-profit event.
Everyday price is higher now because vendors must build the MVM expense into the everyday price.
Excellent for volume. Gross sales jump, but P&L is impacted on the EBIT line. Transportation is a challenge
with demand vs buyer projections a challenge.
Very efficient program and sales increases are 10-14 x normal movement, has become costly due to it expanding
from 17-25 days.
The lift has decreased as the programs changed from 18 to 25 days.
Excellent program as it allows us to drive volume when needed and communicate additional value to the member.
Sam's has not figured out how to do this.
Costco was founded on bringing the greatest value to the members and it isn't getting the best price if they
demand MVM funding.
Non-Food Significant impact on sales, 300% lift per week. Profit impact is a concern with new coupon coding methodology.
Non-Food MVM's have been incredibly beneficial to our business without dramatic effect on margin.
Costco has become too dependent on the MVM and it has resulted in conditioning their consumer to change
Non-Food
their buying behavior on certain items given the frequency and pattern of MVM's.
We see sales increases of 500%.
Other
Frequent couponing has trained members to seek out and expect the service; so much so that they withhold
Other
purchase while awaiting latest mailer/coupon flyer.
Food
WCF Research, 2010
Respondents also expressed concern with the effect the MVM coupon program has on member buying habits. One company
said, “Frequent couponing has trained members to seek out and expect the service; so much so that they withhold purchase
while awaiting [the] latest mailer/coupon flyer.” A large non-food vendor said, “Costco has become too dependent on the MVM
and it has resulted in conditioning their consumer to change their buying behavior on certain items given the frequency and
pattern of MVM's.”
New Club Openings – When the clubs open new buildings, expect club buyers to ask for special deals for that location. From
the buyer’s perspective, he is providing the vendor with a new distribution point so they are looking for something in return for
the added business. In addition, the buyer sometimes has to purchase product four to six weeks before it can be sold in the
new location. Club buyers look for extended payment terms and maybe an off invoice percentage on the first one or two
orders. Be specific and track the purchase order and other information so that the buyer does not inadvertently apply these
deals to other locations.
Television Advertising – Premier Retail Networks (PRN, www.prn.com), based in San Francisco, California, creates
customized television programming and advertising for retailers nationwide. PRN has been providing high definition content
in all Sam’s Club locations in the United States since 2000 and in all Costco locations in the United States since 2004.
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PRN makes money in two ways: it charges a service fee to its club customers and it collects advertising fees from
manufacturers and content partners. PRN’s programming can be tailored for club customers based on factors such as
demographics, geography, club type and location within a club. The programming is beamed by satellite to the club locations.
Each programming loop can last one to three hours and is updated every four weeks. Programming content includes
categories such as health and beauty aids, entertainment, electronics, food and grocery, fashion, family and automotive.
PRN has more than 150 advertisers, including consumer product companies, entertainment companies, consumer electronic
companies, satellite providers and television networks. PRN advertisers have included: 3M, Black & Decker, Disney, Ferrero,
General Mills, Heinz, Sony, Unilever and Warner Brothers.
Road Shows or Special Events – Road shows or special events feature unique or high-quality merchandise that is not
typically stocked in the clubs. This merchandise is available for a limited time, usually over a weekend, but can be stocked for
up to 10 days. In many cases, the vendor or its representative will be present to demonstrate the product, with trade show-type
displays used as a backdrop. The merchandise can be sold to the club or taken by the warehouse club on consignment.
These special events are used to create excitement and test member reaction. The product is guaranteed to the club and the
cleanup of the event is the vendor’s responsibility. The road show travels from club to club based on buyer direction so
members in different locations can experience the unique merchandise.
Club Magazines – All three clubs publish a magazine. Costco’s is called The Costco Connection. BJ’s is called BJ’s Journal
and Sam’s is called Sam’s Club Source. All of these publications are advertiser driven, with vendors purchasing the
advertising space. In addition, each club can feature articles about its vendors, which is a great way for those companies to
generate interest in their products.
Costco Cookbook – The ninth edition of Costco’s cookbook (published 2010) is called Smart Cooking: The Costco Way.
This book offers vendors a unique way to promote their company and their products to Costco members. David Fuller,
publisher of the series, said, “We have created a cookbook designed to showcase the exciting array of foods sold at Costco …
The book is designed … with sections for breakfasts, appetizers, salads and soups, side dishes, entrees, desserts and
beverages … We have also included a supplier listing section … Every recipe has been identified with the supplier’s name and
logo.”
Marketing Money
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